Inflation Drops to 4.2% in December

Lower fuel prices and high-street discounts caused inflation to fall from 4.8% in November to 4.2% in December.

The Office for National Statistics gave a number of factors for the drop in their Consumer Price Index. They noted that retailers dropped their prices in the build-up to Christmas in an attempt to attract cash-strapped consumers into their stores, whereas last year some raised prices in anticipation of the sales tax rise from 17.5% to 20%. The ONS said that fuel prices fell by 0.6% on the month as upward pressures from energy prices eased, leaving the rate of inflation for transport at its lowest in over a year.

Inflation looks set to drop even further in 2012 with gas and electricity prices set to fall by 5% according to Major Utilities. Tesco has predicted flat profits this year too as it plans to reduce prices. The threat of falling inflation could influence the Bank of England’s Quantitative Easing programme; many predicted that the £275 billion scheme would be bolstered in February and it seems all the more likely now in order to combat inflationary decline.

Whilst the drop is bad news for the Pound it could bring about a boom in bargains for the average citizen; prices are falling and retailers are competing for the best prices in order to take their share of the waning marketplace.